IF THE "likelihood of global catastrophe has declined" can be considered an upbeat statement, then Glenn Stevens was positively a ray of sunshine yesterday.
As investors scour the world for a spark of optimism, the Reserve Bank governor's comments - that the end of the world might not be nigh after all - were gladly received.
Mr Stevens, who endorsed the worldwide management of the banking turmoil, also used his speech to suggest a changed role for finance in the broader economy once the worst of the crisis passes.
"The situation is very serious," Mr Stevens told a Trans-Tasman Business Circle lunch in Sydney.
"Perhaps the finance sector globally will return to fulfilling something more like its historical role of being 'the handmaiden of industry', with a bit less in the way of exotic innovation of its own," he said.
"In the case of Australia at least, it is now hard to avoid the conclusion that underlying growth in productivity has slowed over the past five years, compared with what was seen through most of the 1990s and the early part of this decade … Once the immediate crisis has passed, that might be a conversation worth having."
His relatively positive tone - "the world is … getting onto a better path" - stood in contrast to minutes of the Reserve's October board meeting at which it decided to cut official interest rates by a full percentage point.
The minutes, released yesterday, revealed that the Reserve had planned to recommend a 0.5 point cut, but the rapid deterioration in the banking sector prompted a larger move.
After Government measures to support bank borrowing, global credit markets continue to loosen, boosting shares and investor confidence.
The local sharemarket jumped nearly 4 per cent yesterday as traders saw the credit news as positive for world growth, and piled into commodities.
In the region, Japan's Nikkei 225 was up 3.3 per cent late yesterday, but Hong Kong's Hang Seng was flat.
The rally came after a 4.7 per cent surge on Wall Street on Monday night, which had followed a fall in lending costs.
London's measure of inter-bank lending rates, Libor, fell from 4.42 to 4.06 per cent - its biggest one day move since January. Libor is regarded as the most important rate for lending between international banks.
The head of Australian Unity Investments, David Bryant, said the easing in credit markets helped to allay the most pessimistic predictions of worldwide financial crisis.
"It's almost as though the market was priced for fear and a recession. Now everyone's saying, 'OK, now we only need to price in a recession,' " he said.
"We're going to have recessions of different depths in different regions, but people are comfortable in dealing with that concept, as they know how [recessions] work and play out."
But Mr Bryant said the market remained delicately poised. "It's just going to take one loose bullet somewhere and the ceasefire's over," he said.
ANZ economists said Mr Stevens's "cautiously optimistic tone" threw into doubt the prospect of immediate rate cuts by the Reserve. Its board meets again on November 4.
